Primitive stromal cells can be isolated from umbilical cord Wharton's jelly (UC-PSCs). Umbilical cord can be easily obtained without causing pain to donors, and the procedure avoids ethical and technical issues. UC-PSCs are more primitive than mesenchymal stem cells (MSCs) isolated from some other tissue sources. In this study, UC-PSCs were induced to differentiate into insulin-producing cells, and compared with bone marrow-derived MSCs (BM-MSCs) for their pancreatic differentiation potential. UC-PSCs showed significantly higher proliferation than BM-MSCs. During pancreatic induction, UC-PSCs formed larger islet-like cell clusters than BM-MSCs. Immunocytochemical analysis showed that higher expression of the pancreatic-specific transcription factor PDX-1 was detected in differentiated UC-PSCs than in differentiated BM-MSCs. Flow cytometry analysis demonstrated that the percentage of differentiated UC-PSCs expressing pancreatic-specific marker C-peptide was 72% higher than differentiated BM-MSCs. Radioimmunoassay revealed that differentiated UC-PSCs secreted significantly more insulin than differentiated BM-MSCs. These results demonstrated that UC-PSCs had higher pancreatic differentiation potential than BM-MSCs. Therefore, UC-PSCs are more suitable for pancreatic tissue engineering in the treatment of type I diabetes than BM-MSCs.